Nature of Business- Definition, Concept
The word Business is derived from 'bus- ness,' for example keeping oneself busy with either work, yet it is substantially more than being occupied.
To have a superior comprehension of what a business is:
Economic Activity:
The whole sole purpose of the economic activity nature of a business is maximising wealth agenda
Creates Utility:
The service or goods incurred in a business creatures utility, that is, the conversion of product in a consumable form. Time utility occurs when the making of the services or goods are available when there is a need for them. Finally, place utility occurs when there is an availability of the services or goods wherever required, for the consumers.
Capital Requirement:
Any endeavour requires a store contingent upon the size and its sort.
Goods and Service Deals:
It is identified with assembling and offering merchandise available to be purchased or providing food administrations.
Profit Earning Motive:
The underlying rationale of a finance manager is making a benefit out of his endeavour.
Consumer Satisfaction:
It is worried about the fulfilment of the client's requests and needs.
Buyer and Seller:
There are significantly two gatherings included, the client and the product.
Social Obligations:
It has some social duties, such as making openings for work, managing authorised items and so forth.
Importance of Business
Business is an independent work that opens the door for an individual to become self-reliant and ace his thoughts. It isn't just gainful to the proprietor yet additionally affects society.
Revenue Generation:
It is the way to income age for the entrepreneur since it acquires benefit and ends up being a wellspring of pay for the proprietor.
Economic Growth:
It is fundamental for the financial development of a nation since high income implies a higher duty assortment.
Improves Standard of Living:
A country with more modern units and organisations experience a higher pace of business and better expectations for everyday comforts.
Innovation:
It includes conceptualising and age of groundbreaking thoughts which opens up the path for development.
Generates Employment:
It is a drawn-out cycle which requires the human asset to work effectively. Consequently, it makes openings for work.
Business Risks
Business risk can be characterised as vulnerabilities or startling functions, which are out of hand. In basic words, we can say business hazard implies an opportunity of causing misfortunes or less benefit than anticipated. The financial specialists can't constrain these elements, and these can bring about a decrease in service or can likewise prompt trouble.
Causes of Business Risk
Natural Causes
Natural causes of risk occur due to natural calamities like cyclones, flooding, earthquakes, and other natural disasters that can lead to the loss of properties and lives. For example, a delivery bike is on its way to deliver the good order made by a customer but is met with a storm along the way, leading to an accident. To escape natural causes, businesses need to take out comprehensive insurance coverage to manage every loss incurred.
Human Causes
Human causes are identified with an opportunity of misfortune because of individuals or representatives of the association. The deceptive nature of representatives can bring serious mishaps for business. For example, the workers may release a business mystery to a contender and may submit misrepresentation likewise bring substantial troubles by wastage of assets.
The representatives may hamper the creation by going on strikes, riots and so on. This cause can likewise prompt substantial loss of business condition. There can be value variances in the market; there can be an adjustment in style, taste, inclinations, and requests of clients.
Monetary Causes
Monetary causes are identified with an opportunity of misfortune because of progress in the market. There can be an adjustment in the level of rivalry. All these directly affect the profit of the business.
Indeed, even change in Government strategy influences the business a great deal. For instance, in 1971, when the Janata government came to control the Coca-Cola Company, numerous other unfamiliar organisations were sent back to India.
Economic Causes
Economic causes involve situations like a growing increase in the prices of raw materials or labour costs, or the ever-increasing rise in the interest rates for borrowing, and competition.
Types of Business Risk
The business risk can be classified into two significant classifications:
Insurable Risk
The dangers which can be recuperated are called insurable dangers. The misfortunes which can be made acceptable or misfortunes for which organisation can get pay from the insurance agency are called Insurable Risks. By and large, the common and physical dangers are insurable.
Non-insurable Risks
The dangers for which no security is accessible are called Non-insurable hazards. The finance managers can't get paid for an adjustment sought after or misfortune because of carelessness or thoughtlessness of representatives.
FAQs on Business Nature: Key Characteristics
1. What are the key characteristics that define the nature of a business according to the CBSE syllabus?
According to the Class 11 syllabus, the fundamental nature of a business is defined by several key characteristics:
- Economic Activity: A business is primarily an economic activity concerned with the production and/or distribution of goods and services to earn money.
- Production or Procurement of Goods & Services: Every business either manufactures the goods it sells or acquires them from producers to sell to consumers at a profit.
- Sale or Exchange: Business involves the transfer or exchange of goods and services for value. If goods are produced for self-consumption, it is not a business activity.
- Dealing in Goods & Services on a Regular Basis: A single transaction of sale or purchase does not constitute a business. It must be a recurring activity.
- Profit Earning Motive: The primary objective of any business is to earn a profit. Profit is essential for survival, growth, and as a measure of success.
- Uncertainty of Return and Element of Risk: Every business involves risk, which is the uncertainty of reward or the possibility of loss. Future outcomes can never be predicted with absolute certainty.
2. How is a business different from a profession and employment?
While all three are forms of economic activity, they differ in several ways:
- Motive: The primary motive of a business is to earn profit. For a profession, it is to provide a specialised service. For employment, it is to earn a salary or wage by performing work for an employer.
- Establishment: A business is established after completing legal formalities. A profession requires membership in a professional body and a certificate of practice. Employment begins after receiving an appointment letter.
- Risk: Business involves high financial and operational risk. In a profession, the risk is generally low. In employment, there is virtually no risk for the employee.
- Reward: The reward for a business is profit. For a profession, it is a fee. For employment, it is a salary or wage.
3. What is the importance of business activities in the economic development of a country like India?
Business activities are crucial for the economic development of a nation in several ways:
- Employment Generation: Businesses, from small-scale industries to large corporations, create jobs, which helps reduce unemployment and poverty.
- Economic Growth: Successful businesses contribute to the country's Gross Domestic Product (GDP) through production and generate revenue for the government via taxes.
- Improved Standard of Living: By making a wide variety of goods and services available, businesses help improve the quality of life for citizens.
- Innovation: Competition in business encourages new ideas, technologies, and better production methods, which drives overall progress.
- Utilisation of Resources: Businesses effectively utilise a country's natural and human resources to create valuable products and services.
4. Can you provide some real-world examples of different types of business activities?
Business activities can be broadly categorised, with each having distinct examples:
- Manufacturing: This involves converting raw materials into finished goods. For example, a company like Tata Motors manufactures cars, or a local bakery bakes bread and cakes.
- Trading: This activity involves buying goods and selling them at a higher price without changing their form. Examples include a local kirana store (retailer) or a business that distributes products to these stores (wholesaler).
- Services: This involves providing intangible utilities. For instance, a bank like HDFC provides financial services, a company like TCS provides IT services, and a doctor provides medical services.
5. Why is 'risk' considered an essential and unavoidable characteristic of business?
Risk is an inherent part of business because business activities are performed for a future period, and the future is always uncertain and unpredictable. It is unavoidable for several reasons:
- Market Fluctuations: Changes in consumer tastes, fashion, demand, and the level of competition are beyond the control of any single business.
- Economic Factors: Changes in government policy, inflation rates, or taxes can directly impact a business's profitability.
- Natural Calamities: Events like floods, earthquakes, or fires can cause significant unforeseen losses.
- Human Factors: Risks can also arise from employee negligence, strikes, or mismanagement.
Because these uncertainties cannot be eliminated, every business must manage risk to survive and succeed. The principle of 'no risk, no gain' applies, as the potential for profit is the reward for taking on these risks.
6. How does a business create 'utility' to satisfy consumer needs?
A business satisfies consumer needs by creating different types of utility, which means adding value to a product or service. The main types are:
- Form Utility: This is created by changing the form or shape of raw materials into a finished product that consumers want. For example, converting wood into furniture or cotton into textiles.
- Place Utility: This is created by making a product available at a location convenient for the consumer. For instance, a retail store in a residential area makes daily-need products easily accessible.
- Time Utility: This is created by making a product available when the consumer needs it. For example, a chemist shop staying open 24/7 or a warehouse storing winter clothing until the winter season arrives.
7. If the main motive of business is to earn profit, how do social objectives fit into its nature?
While profit is the primary motive, modern businesses recognise that they cannot operate in isolation from society. Integrating social objectives is not contradictory to the nature of business; rather, it is essential for long-term survival and success. A business serves its social objectives by:
- Producing Quality Goods: Providing safe, reliable, and fairly priced products.
- Avoiding Unfair Trade Practices: Preventing black marketing, hoarding, and misleading advertising.
- Generating Employment: Creating fair job opportunities without discrimination.
- Community Service: Contributing to social welfare by supporting education, health, or local infrastructure.
Fulfilling these objectives helps a business build a strong reputation and goodwill, which ultimately supports its profit-making ability in the long run.
